RBA cuts rate in June by 25 points

At its meeting today, the Reserve Bank of Australia cut the official cash rate by 0.25%. Effective June 6th, the cash rate now sits at 3.50%.

Though the cut was predicted by many in the lead up to today's decision, the 25 point cut still represents a clear signal from the RBA that economic conditions both locally and internationally are such that monetary policy could be set with expansion in mind.

At today's meeting, the Board judged that, with modest domestic growth and a weaker and more uncertain international environment, the outlook for inflation afforded scope for a more accommodative stance of monetary policy.

Why the cut?

Trouble abroad and uncertainty in Australia added up to equal 25 points for the Reserve Bank.

Globally, weakening in Europe and further moderation of growth in China, matched by declination in commodity prices compounded the deterioration of financial market sentiment in the past month.

Despite strong employment figures and continued, if moderate domestic growth, both households and businesses continue to exhibit a degree of precautionary behaviour, which may continue in the near term.

The recent federal budget, which looks to return the government's books to surplus in quick time, will also be playing on the mind of the RBA, who will be forced to act more aggressively in their monetary policy setting to balance the fiscal contraction.

What will the banks do

As we have seen in recent months, changes by the Reserve Bank are not necessarily followed by similar changes by Australia's banks and mutuals.



Which banks have been naughty or nice? Find out on our new home loan interest rates page.



Last month we called for lenders to buck the ANZ-lead trend by passing on the full 50 point cut. We were sorely disappointed.

Surprisingly it was CommBank who was out the front of the peloton cutting by 0.40% which moves them into second position on the Big 4 podium, behind pace-setters NAB

Borrowers

The good news continues for borrowers, but those expecting to see the full 25 point cut lopped straight off their home loan may be in for a long wait.

Just like last month, NAB-backed UBank tops the home loan market, with the UHomeLoan offering the best comparison rate for borrowers looking to refinance @ 5.83% p.a. comparison rate.

Who's been naughty or nice? To keep up to date on the changes being made by the banks following the RBA rate cut, check out our new page on mortage rates.

Savers

Savings rates took a bit of beating in May, especially term deposits. The best term deposits rates at the start of May were 6.01% for 6 months and 5.90% for one year. Now the best 6 month rate on offer is UBank at 5.51%, while the best 1 year rate is 5.30% - a full 60 basis points below last month's best.

For more info on term deposit rates, check out our new page.

Rates on savings accounts are slightly more appealing, as the competition for consumer deposits continues to play out. The recent launch of the RAMS Saver account to the general public offers up an ongoing variable rate of 5.75% as long as $200 is deposited each month and no withdrawals are made.

Compare all savings accounts.

Read last month's Reserve Bank interest rates update.

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